BG Group, EXCO to exploit Appalachian leases

By OGJ editors
-- BG Group PLC will join EXCO Resources Inc., Dallas, in 50-50 development and operation of EXCO’s Appalachian basin assets in Pennsylvanian and West Virginia.

EXCO will receive $950 million to sell to BG membership interests in companies that hold 50% of EXCO’s producing and nonproducing assets in Appalachia. EXCO and BG will jointly own an operating company that will continue to serve as operator of the properties subject to oversight from a management board with equal representation from EXCO and BG.

The transaction will be effective Jan. 1. Closing is set for June.

EXCO and BG will also jointly pursue the construction and expansion of gathering systems, pipelines, and treating and processing facilities through a newly formed and jointly owned midstream company.

As of Dec. 31, 2009, the existing assets in the joint venture included 654,000 net acres with 186,000 net acres prospective for Marcellus shale gas development. Also included is net production of 35 MMcfd of gas equivalent, mainly from shallower conventional horizons.

As of the same date, the assets included 265 bcfe of net proved reserves based on yearend Securities and Exchange Commission pricing. The Marcellus shale acreage is being developed with one rig, and EXCO estimates that the acreage position, mostly held by shallow production, includes more than 5,000 undrilled Marcellus locations.

EXCO and BG plan to increase development for the rest of 2010 and in future years and aggressively pursue opportunities to obtain more acreage in the basin.

EXCO will receive $800 million in cash at closing, subject to customary closing adjustments. BG agreed to fund $150 million of capital development on EXCO’s behalf, with BG Group paying 75% of EXCO’s drilling and completion costs on the deep rights until the $150 million commitment is satisfied.

The drilling and completion cost commitment is expected to be satisfied in 2011 or 2012. EXCO and BG will share equally in any future additional leasehold and asset acquisitions in the basin.

EXCO will apply the total unadjusted cash proceeds of $800 million from the joint venture transaction to the outstanding balances under its credit facility.

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